Answer:
1. Total Annual Cash Inflows = 5000
2. Discount Factor = 3.72
3. New Machine's internal rate of return = 16%
Explanation:
<em>Note:</em> the question is incomplete and it lacks essential data to be used in part 4. Without the exhibits mentioned in the questions, it is not possible to solve this question completely. We will be solving it till part 3.
1) What would be the total annual cash inflows associated with the new machine for capital budgeting purposes?
Answer:
In this we have to calculate the total annual cash inflows and the formula to calculate it is mentioned below:
Total Annual Cash Inflows = Savings in Part Time help annually + Additional contribution Margin from Expected Sales.
Total Annual Cash Inflows = 3800 + ( 1000 x 1.20)
Total Annual Cash Inflows = 3800 + 1200
Total Annual Cash Inflows = 5000
2. What discount factor should be used to compute the new machine’s internal rate of return?
Answer:
Formula to calculate the Discount factor:
Discount Factor = Price of new machine/ annual cash inflow
Price of new machine = 18600 USD
Annual cash inflow = 5000
Discount Factor = 18600 /5000
Discount Factor = 3.72
3. What is the new machine’s internal rate of return?
Answer:
As, it can be seen from the exhibits (which are missing from this question) that the discount factor for 6 years is nearly closest to 16%, hence the new machine's internal rate of return = 16%
<em>Note:</em> the question is incomplete and it lacks essential data to be used in part 4. without the exhibits mentioned in the questions. It is impossible to solve further.
